Top Concerns and Current Issues

1
MINNESOTA COUNTIES INSURANCE TRUST
2004 On-site Risk Management Training for _____
County

• Top Concerns and Current Issues
• Presented By
• Date

2
Contracts Introduction

• Why are Contracts important?
• County-wide concern
• Member input
• To help counties identify and manage risks
  assumed in Contracts
• May increase the countys exposure to loss
• Could be agreeing to terms or conditions not
  covered by MCIT
• To provide risk management recommendations for
  ways to prevent or reduce risk in Contracts

3
Types of Contracts

• Easement Agreements
• Railroad
• Trails
• Right-of-way
• Joint Powers Agreements
• Collaboratives
• Juvenile Detention Center
• Libraries
• Grant Agreements...

• Lease/Rental Agreements
• Space Rental
• Office Equipment
• Contractors Equipment
• Vehicles
• Construction Agreements
• Building/Renovation Projects
• American Institute of Architects (AIA)

4
Types

• Service Provider Contracts
• Public Health Nursing Services
• Social Services Service Providers
• Lawn/Building Maintenance Services
• Computer Services
• Engineering Services
• Architect Services
• Legal Services

5
Recognize the Risks Created In Contracts

• Understand MCIT Coverage Document
• Exclusions are generally applied when
• Exposure is limited to one member or a few
  members
• Providing coverage is not beneficial to all
  members
• Cost of coverage would be prohibitive
• Exposure has the potential to affect reinsurance
• Assets of the Trust would be at risk

6
Risks

• Breach of Contract Exclusion
• Any Claim based upon Breach of Contract or
  other obligation arising out of an agreement
  creating an obligation on behalf of a member to
  another person or entity. This clause
  specifically excludes any coverage for damages
  or claim expenses based upon, caused by or
  arising from
• Breach of contract
• Cost estimate overruns on any Contract or project
• Any penalties for failure to comply with a
  contractual obligation OR
• Other duties assumed as a result of a written
  agreement...

7
Risks...

• County could agree to limits in excess of MS466
• Significance of MS466
• Legislation that protects Minnesota
  Municipalities
• Provides certain Immunities and Defenses
• Places a CAP on Tort Liability claims
• 300,000 per Claimant
• 1,000,000 per Occurrence
• Could Agree to coverage not provided by MCIT
• Example
• Railroad Contract that required county clean up
  any pollution discovered onsite
• Pollution Liability Exclusion...

8
Risks

• Contractual Liability Exclusion
• Excludes coverage for Bodily Injury or Property
  Damage that the county is obligated to pay
  because you assumed that Liability in the terms
  of the contract
• Exceptions
• Liability that you would have had if you didnt
  enter into the agreement
• Covered Party Contracts as defined
• Lease of Premises
• Sidetrack Agreements
• Easement or License Agreements
• Elevator Maintenance Agreements

9
Risks...

• Covered Party Contract does NOT include
• Construction or demolition operations within 50
  feet of any railroad or trestle, track, road bed,
  tunnel underpass or crossing
• Indemnification to an architect, engineer or
  surveyor
• Indemnification to any person or organization for
  damage by fire to premises rented or loaned to
  you
• This exclusion is often the least understood and
  most confusing provision...

10
Risks...

• Example
• County hires a plumber to repair a pipe in the
  courthouse. Water leaks from a pipe creating a
  puddle on the floor. Rather than cleaning up the
  water, the plumber takes his lunch break. A
  resident comes to the courthouse to pay her taxes
  and slips on the water, breaking her hip.
• The County tells the plumber to submit the claim
  to his Liability insurance carrier.
• The plumbers insurance carrier reviews the
  Contract and finds it included a provision
  stating the County would hold the plumber
  harmless. Therefore, the insurance carrier
  tenders the claim back to the County.
• The County submits the Liability claim brought
  against the plumber to MCIT. Coverage is denied
  based on the Contractual Liability exclusion...

11
Risks

• Concern
• Members might assume Liability in the Hold
  Harmless Indemnification Agreement
• Hold Harmless and Indemnification
• Hold Harmless One party assumes an obligation
  to protect and defend another
• Indemnification One party agrees to pay for
  losses or damages incurred by another as a result
  of contract...
• Important tool in transferring risk Key
  Question 4

12
Risks

• Hold Harmless Agreements
• Each should be appropriate for the specific
  agreement
• County holds the other party harmless for the
  Countys negligent acts
• Other party holds the County harmless for their
  negligent acts
• CAUTION County holds other party harmless for
  the other partys negligent acts...

13
Risks

• Waiver of Subrogation
• Is the County agreeing to waive MCITs Right of
  Subrogation?
• Subrogation The trusts right to recover from
  the negligent party
• Waiver of Subrogation Waives the trusts legal
  right of recovery
• MCIT Bulletin Article (April 2004)
• Dont Give Away An Opportunity To Replenish The
  Pool With A Waiver Of Subrogation

14
Risk Management Recommendations

• Review Contracts before signing
• Review new and renewal Contracts
• Terms are generally negotiable
• Board approval or delegation of authority
• Develop Contract review process
• Examine
• Terms of the Agreements
• Hold Harmless and Indemnification Clause
• Insurance Provisions
• Waiver of Subrogation
• Escape Clause/Cancellation Clause
• Obtain a legal opinion

15
Risk Management Recommendations...

• Utilize MCITs resources
• Publications (Bulletins/Resource Briefings)
• Checklist of Recommended Coverages for
  Independent Contractors or Construction Projects
• Contracting with outside vendors
• Do not qualify for MS466
• No limit to the amount of damage
• Contracting with another municipality
• Limits for both parties should reference MS466
• MCITs limits mirror those outlined in the first
  and third clauses of MS466, subdivision 1
• Contact your MCIT Account Executive
• Review from a Risk Management perspective
• Develop Policies and Procedures to review
  Certificates of Insurance

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Why Manage Certificates of Insurance?

• Effective Risk Management tool
• Protects the Hold Harmless and Indemnification
  Agreement in the Contract
• Provides evidence the other party can satisfy
  their obligation
• Meeting obligations of liability losses assumed
  under the agreement
• Provides protection for loss or damage to
  property that has been assumed under the Contract
• Demonstrates the other party has insurance to
  support the Contract...

17
Why Manage Certificates of Insurance...

• Workers Compensation
• Independent Contractor An Employee?
• Every Independent Contractorin the public
  sector or private sector is, for Workers
  Compensation purposes, an employee of any
  employer for whom the independent contractor is
  performing service, except as provided in
  MS176.042 subdivision 2
• 9 conditions to avoid Workers Compensation
  Liability
• Must meet all 9 points to not be an employee for
  Workers Compensation purposes
• Employees of Uninsured Independent Contractors
• MS176.215 transfers responsibility

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What is a Certificate of Insurance?

• Standard form issued as evidence of a policy
  holders coverage and limits of liability
• ACORD
• MCIT

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ACORD Certificate of Insurance
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MCITs Certificate of Insurance
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Limitations

• A certificate is not an insurance policy
• Evidence of insurance only
• Represents the coverage and limits at the time of
  issuance
• At the time the Contract is executed
• The work prescribed has begun
• Limits might be reduced by paid claims
• Claim may be higher than available limits
• Does not define or modify coverage
• Certificate holder
• Not entitled to information regarding policy
  changes
• Only entitled to notice of cancellation

22
Risk Management Recommendations

• Require contracting party to furnish an original
  Certificate of Insurance before work commences
• Require the County be named as an Additional
  Insured on relevant liability policies
• Affords the County coverage under the vendors
  policy
• Affords defense should the County be sued based
  on actions of the vendor...

23
Risk Management Recommendations...

• Require a Hold Harmless Agreement in favor of the
  County
• Example found in the Recommended Checklist
• Require appropriate coverage and limits for the
  project or service
• Recommended Checklists provide MINIMUM
  recommended limits
• MS466 limits for other municipalities...

24
Risk Management Recommendations...

• Require Insurance be placed with Insurers with a
  current A.M. Best rating of no less than A VII
• A. M. Best Company
• Largest, longest-established rating company
• Provides measurement of insurer financial
  stability
• Two part rating - separated by a colon
• First portion - assessment - overall management
• A, A (Superior) to S (Rating Suspended)
• Second portion - Assessment of financial size
  (policyholders surplus)
• Roman numeral ranging up to XV
• More information or look up rating on
  website www.ambest.com

25
Risk Management Recommendations...

• Require 30-days written notice of intent to
  cancel, suspend, or reduce coverage (60-days
  preferable)
• Delete endeavor to and however, we assume no
  liability for failure to do so in the
  cancellation clause
• Compare certificate limits and coverage to
  requirements in each contractual agreement...

26
Risk Management Recommendations...

• Effectively manage Certificates of Insurance
• Review each certificate
• Information could change from prior year
• Establish certificate file
• Consider two copies
• One filed alphabetically
• One filed chronologically
• Suspense or tickler system
• Use a form letter to obtain certificates and
  renewal certificates
• Certificates of Insurance can be an effective
  risk management tool if used and managed properly

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Resources

• MCIT Bulletin articles (handouts available)
• Dont Give Away An Opportunity To Replenish The
  Pool With A Waiver Of Subrogation (April 2004)
• Damage To Property Provisions In Contracts
  (November 2003)
• Certificates Of Insurance (October 2004)
• Independent Contractors 9 conditions found in
  MS176.042
• Checklist of Recommended Coverage for Independent
  Contractors
• Checklist of Recommended Coverage for
  Construction Projects